----->this May Help!!! <---- *read*
*SKIP THIS IF YOU DON't WANT TO WASTE TIME*
*Not a fix but a alternate solution*
So this also happened to me, the home button just died :\
this seems to be a consistant problem on the 1st gen, seen way to many forums discussing this.
maybe it is just me but i think apple is behind this :\
on the other hand, this started to happen to me after i connected it to itunes and it said "there is a newer firmware available for your device"
The alternate fix
1.jailbreak your ipod/iphone (blackra1n / Quickpwn / etc...)
2.Open Cydia
3.Search "ProSwitcher" and install *also will install "Backgrounder"*
*may have to respring*
4.Open settings on your home screen
5.If installed correctly you should see "Proswitcher" when you scroll down
6. Select "activation methods"
7.Choose your activation method.(i use "From Screen Bottom" & "Double Tap")
8.to exit settings just use the activation method you just selected

there you are done

this is also a real cool because you can switch between apps you have opened in a palmpre style.
Enjoy!
* YOU CAN USE SBSSETTINGS HOWEVER THIS IS A MUCH BETTER ALTERNATIVE*
*i also plan on opending my ipod and try to see what is the problem. i will update if i found a fix for it*
**i also plan on restoring my ipod to see it is software issues, will update if anything*